Morningstar DBRS Changes Trends on Six Classes of CSAIL 2016-C6 Commercial Mortgage Trust to Negative, Confirms Credit Ratings on All Classes

DBRS Limited (Morningstar DBRS) confirmed its credit ratings on the Commercial Mortgage Pass-Through Certificates, Series 2016-C6 issued by CSAIL 2016-C6 Commercial Mortgage Trust as follows:

-- Class A-4 at AAA (sf)
-- Class A-5 at AAA (sf)
-- Class A-S at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class X-A at AAA (sf)
-- Class X-B at AA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (low) (sf)
-- Class X-D at BBB (sf)
-- Class D at BBB (low) (sf)
-- Class X-E at BB (sf)
-- Class E at BB (low) (sf)
-- Class X-F at B (sf)
-- Class F at B (low) (sf)

Morningstar DBRS changed the trends on Classes D, E, F, X-D, X-E, and X-F to Negative from Stable with this review, primarily reflecting increased risks for the pool in a few larger loans that have been identified by Morningstar DBRS as candidates for elevated refinance risk based on the in-place performance and projected equity contribution needed for a successful take out at the respective 2025 and 2026 maturity dates, as further described below. All remaining trends are Stable.

The credit rating confirmations reflect the overall stable performance of the transaction since the last credit rating action in August 2023. Although there is a high concentration of loans secured by office properties, which represent 41.1% of the current pool balance, the majority of those loans continue to perform as expected, with the underlying collateral demonstrating stable operating performance over the last few reporting periods. These loans include the largest loan in the pool, 200 Forest Street (Prospectus ID#2, 16.6% of the pool), which is secured by an office building in Marlborough, Massachusetts. The largest two tenants represent just above 90% of the net rentable area (NRA) and have leases that run through 2029 and 2030, with no termination options. The loan most recently reported a YE2023 debt service coverage ratio (DSCR) of 2.06 times (x). In addition, the transaction, as a whole, continues to benefit from increased credit support to the bonds as a result of scheduled amortization, loan repayments, and defeasance, further supporting the credit rating confirmations and Stable trends assigned with this review.

As of the July 2024 remittance, 43 of the original 50 loans remain in the pool, with a trust balance of $523.2 million, representing collateral reduction of 31.8% since issuance. To date, there have been no losses to the trust. Eight loans, representing 19.2% of the pool balance, are on the servicer's watchlist. In addition, one loan, representing 8.3% of the pool balance, is in special servicing and 18 loans, representing 21.6% of the pool balance, are fully defeased. With this review, Morningstar DBRS considered a liquidation scenario for the specially serviced loan, Laurel Corporate Center (Prospectus ID#4; 8.3% of the pool), the details of which are described below. Morningstar DBRS also stressed the loans that were showing performance declines from issuance, with an elevated probability of default (POD) penalty and/or loan-to-value ratio (LTV) to reflect increased refinance risk, given the near-term maturity dates between November 2025 and May 2026. Should these or other loans default, or should performance for the specially serviced loan deteriorate further, Morningstar DBRS' projected losses for the pool may increase, and classes with Negative trends may be subject to credit rating downgrades.

The Laurel Corporate Center loan is secured by a portfolio of six Class B office buildings totaling 560,210 square feet (sf) in Mount Laurel, New Jersey. The loan transferred to special servicing in April 2024 for payment default, with the last payment received in February 2024. The special servicer is currently dual-tracking foreclosure while continuing negotiations with the borrower regarding a possible modification. While the operating performance at the property remains stable with portfolio reported occupancy rate of 78.8% and DSCR of 2.40x based on YE2023 financials, the lease rollover for the portfolio is elevated, with 23.0% of the NRA scheduled to roll within the next 12 months. Given the significant rollover risk, special servicing status, Class B construction, and lack of investor appetite for office properties, Morningstar DBRS believes the collateral's current value is significantly impaired compared with its issuance value of $58.1 million. Morningstar DBRS analyzed this loan with a liquidation scenario based on a 40% haircut to the issuance value, resulting in a loss severity in excess of 30.0%.

The second-largest loan in the pool, Quaker Bridge Mall (Prospectus ID#3, 12.7% of the current pool balance), is secured by the in-line and outparcel space of a 1.1 million-sf two-story regional mall in the Trenton, New Jersey, suburb of Lawrenceville. The mall's owner and operator is Simon Property Group. The mall has exhibited performance declines since issuance, as two of the noncollateral anchors in place at issuance (Lord & Taylor and Sears) closed, leaving Macy's and JCPenney. The largest collateral tenants are Forever 21, H&M, and Old Navy. The servicer most recently reported a collateral occupancy rate of 92% as of YE2023, which is in line with the past few years and up compared with the issuance occupancy rate of 84%. As of YE2023, the loan reported a net cash flow of $12.6 million (a DSCR of 1.54x), a 13.5% decline from the Issuer's underwritten figure of $14.6 million (a DSCR of 1.78x). In addition to the declining cash flow, the rollover risk is also significant, with leases for properties representing 31.2% of the NRA that are already expired or will expire in the next 12 months. A tenant sales report was not provided as of the date of this press release. The issuance appraised value of $168.0 million implies a going-in LTV of 89.0%, which is moderate for the property type and asset location; however, the property's as-is value has likely declined significantly since the loan was originated in 2016 given the dark anchor spaces and the general decline in cash flows. This contributes to a notable level of uncertainty surrounding the loan maturity in May 2026. As a result, Morningstar DBRS maintained an elevated POD assumption to increase the expected loss for the loan in the analysis for this review.

The largest loan on the servicer's watchlist is Jay Scutti Plaza (Prospectus ID#8, 4.4% of the pool), which is secured by a shadow-anchored retail property in Rochester, New York. The DSCR has lagged issuance expectations for several years, with the servicer most recently reporting a Q1 2024 DSCR of 1.11x, down from 1.25x at issuance. Per the March 2024 rent roll, the property reported an occupancy rate of 88.9% compared with 95% at issuance. The tenant mix includes many national chains including Burlington, HomeGoods, Petco, and Value City Furniture. The shadow anchor is Wegmans, a popular grocery chain in the Northeastern United States. The desirable tenant mix is a mitigating factor for the cash flow declines since issuance, but if cash flows do not improve, the sponsor will be expected to come out of pocket with a significant equity infusion to successfully refinance the loan in 2026, supporting the stressed approach to increase the expected loss in the analysis for this review.

Morningstar DBRS' credit ratings on the applicable classes address the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. Where applicable, a description of these financial obligations can be found in the transactions' respective press releases at issuance.

Morningstar DBRS' long-term credit ratings provide opinions on risk of default. Morningstar DBRS considers risk of default to be the risk that an issuer will fail to satisfy the financial obligations in accordance with the terms under which a long-term obligation has been issued. The Morningstar DBRS short-term debt rating scale provides an opinion on the risk that an issuer will not meet its short-term financial obligations in a timely manner.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.
 
A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (August 13, 2024) at https://dbrs.morningstar.com/research/437781.

Classes X-A, X-B, X-D, X-E, and X-F are interest-only (IO) certificates that reference a single rated tranche or multiple rated tranches. The IO rating mirrors the lowest-rated applicable reference obligation tranche adjusted upward by one notch if senior in the waterfall.

All credit ratings are subject to surveillance, which could result in credit ratings being upgraded, downgraded, placed under review, confirmed, or discontinued by Morningstar DBRS.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodology is North American CMBS Surveillance Methodology (March 1, 2024), https://dbrs.morningstar.com/research/428798.

Other methodologies referenced in this transaction are listed at the end of this press release.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link under Related Documents or by contacting us at info-DBRS@morningstar.com.

The credit ratings were initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for these credit rating actions.

Morningstar DBRS had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with these credit rating actions.

These are solicited credit ratings.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the credit rating process.

The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. Morningstar DBRS' outlooks and credit ratings are monitored.

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The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.

-- North American CMBS Multi-Borrower Rating Methodology (March 1, 2024)/North American CMBS Insight Model version 1.2.0.0, https://dbrs.morningstar.com/research/428797
-- Rating North American CMBS Interest-Only Certificates (June 28, 2024), https://dbrs.morningstar.com/research/435294
-- Morningstar DBRS North American Commercial Real Estate Property Analysis Criteria (June 28, 2024), https://dbrs.morningstar.com/research/435293
-- North American Commercial Mortgage Servicer Rankings (August 23, 2023), https://dbrs.morningstar.com/research/419592
-- Legal Criteria for U.S. Structured Finance (April 15, 2024), https://dbrs.morningstar.com/research/431205

A description of how Morningstar DBRS analyzes structured finance transactions and how the methodologies are collectively applied can be found at: https://dbrs.morningstar.com/research/417279 (July 17, 2023).

For more information on this credit or on this industry, visit dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.